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Why The VIX Is Your Friend

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Wow, the level of financial market volatility this last week has been dizzying and the mass media has been taking full advantage.  No sooner do you have your first cup of coffee and CNBC is sending out headlines like:  futures indicate a stock market opening down 1,000 points! Yikes that is pretty scary stuff no matter if you are an active investor or just a casual observer.

We have all come to view volatility as something to be avoided whenever possible.  This may be conventional wisdom, but conventional wisdom produces conventional results: in other words, ordinary.

Volatility can be your best friend and a great way to hedge your investments.  There are just two important things to remember.  First, very seldom does anyone make money reacting to volatility.  Once a price correction like the past week begins, it is too late.  You absolutely must be a contrary thinker.

Common sense says that when the headline reads “Dow breaks 26,000 marking a new record close” that should send out all kinds of warning signals.  There is no need for sophisticated analytical software.  The lesson of the recent past: when so many new record highs have been reached without a correction creates complacency. This is the enemy.

How To Benefit From Volatility

The next thing to figure out is how to benefit from volatility.  There is no single answer because the market is loaded with choices.  If you are an adrenaline junky and actively trading the options market offers endless possibilities.  The mere presence of volatility creates outsized premiums on both the call and put side of the market.

Options allow you to create any scenario of the future your imagination can concoct.  If you are concerned that a major market correction is in the offing, you can load up on S&P 500 Index Puts for a simple example.  

But here is the trick.  Options typically trade at a premium and have a limited life; normally a few months or less.  Your risk is the need to be right on the direction, magnitude and timing of a market correction.  If you are off on your guesstimates, you can lose money as the price premium slowly evaporates over time.

Consider The VIX  

Successful option investors are a special breed that are blessed with analytical and mathematical skills that make places like the Chicago Board of Exchange a natural playground.  The rest of us are more interested in protecting our investments during periods of market turmoil. We want simplicity; let someone else do the math for us.

This is why I am constantly drawn to the VIX.  Here is a complex index where all the calculations are done by others and expressed in a single number.  You can buy it, hold it for as long as you want and sell it quickly when it has served its purpose.

The Benefits of Fear

The VIX is commonly call the fear index because it measures investor attitudes over the coming 30 days.  It is calculated and disseminated in real-time by the CBOE.  According the the official definition, the VIX Index price is a weighted blend of prices for a range of options on the S&P 500 Index.

Owning the VIX is like having and options expert at your fingertips.  Here is why.  The VIX is calculated as the square root of the par variance swap rate for the next 30 days.  This mathematical gobbly gook confuses many people and I have seen more than one investor reject the VIX because that wanted to understand the precise formula.

A Solid Correlation

The most important thing to remember is the VIX correlates inversely with the S&P 500.  This is another way of saying that when the major market averages fall people get nervous.  These nervous attitudes become expressed in the whole series of S&P 500 Futures contracts over the next 30 days.  The more these futures fall, the higher goes the price of the VIX.

The inverse correlation is well documented in the 10 year chart that goes back to the financial crisis of 2008.  At that tumultuous time the VIX hit an all time high of 59.  The last 5 years of building investor complacency has left the VIX languishing most days between 10-15.  There had been nary a mention of the VIX in the financial press until recent days.  During this most time, the VIX shot up from 12 to 50 in just two days.  Remember, that is not far from the all time high during the financial panic of 2008.

Goes Both Ways

The VIX is also a good indicator of when markets are oversold.  So the fact that the Index was driven to near record levels may be telling us the worst is be over for the stock market correction.  If so the VIX served its purpose over that last week but we suggest keeping a close eye on this little misunderstood gem of a hedging vehicle.  Once investor fear is awakened, it tends to hang around.

Featured image courtesy of Shutterstock. 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.4 stars on average, based on 114 rated postsJames Waggoner is a veteran Wall Street analyst and hedge fund manager who has spent the past few years researching the fintech possibilities of cryptocurrencies. He has a special passion for writing about the future of crypto.




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Analysis

Crypto Update: Market Still in Deadlock

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The choppy, directionless period in the cryptocurrency segment continues, with no meaningful change in the technical setups of the major coins. While the broader trends are still clearly bearish and sellers remain in control of the market, we saw another minor bullish shift in the past 24 hours, with modest gains across the board.

Most of the top coins are trading in the range of the Monday session, which saw the spike triggered by the turmoil in Tether. Stellar is the apparent positive outlier of the past few days, while Dash, Litecoin, and Ethereum have been the weakest so far this week.

DASH/USD, 4-Hour Chart Analysis

On a positive note, all of the majors remain above last week’s levels, and especially Bitcoin’s continued stability is encouraging for crypto-bulls here, even as our trend model paints a negative picture of the segment.


BTC/USD, 4-Hour Chart Analysis

Bitcoin avoided a test of the $6275 level despite moving below its recent very narrow trading range yesterday, with still no meaningful bearish or bullish momentum present in the coin’s market. BTC continues to trade below the $6500 level, and its volatility is very low, even after the move below the previously dominant broad triangle consolidation pattern.

Further resistance levels are still ahead near $6750 and $7000, while support levels below $6275 are found near $600, $5850 and between $5000 and $5100.

Altcoins Little Changed as Ethereum Still Glued to $200

XRP/USD, 4-Hour Chart Analysis

The weekend has been very quiet for altcoins so far, with even the recently active Ripple settling down near the $0.46 level. XRP is around the midpoint of Monday’ s range but the lack of follow-through after the breakout from the triangle consolidation pattern is a negative sign, and the coin remains on a short-term sell signal in our trend model. Strong resistance is still ahead at $0.51, $0.54, $0.57, while support is found near $0.42, $0.375, and $0.35.

ETH/USD, 4-Hour Chart Analysis

Ethereum continues to hover around the $200 price level still being in bearish short- and long-term patterns and the relative weakness of the second largest coin remains a huge concern for the whole segment.

With no evidence of meaningful capital inflows to the market, the outlook is neutral at best, and traders and investors should wait for at least a short-term trend change before entering new positions. Strong support is found near $180, $170, and $160, while resistance is ahead near $235 and $260.

EOS/USD, 4-Hour Chart Analysis

EOS is also among the relatively weaker coins, and the coin is stuick in a broad Trading range around the $5.35 level since August. Volatility in the coin’s market has been progressively declining, but the vicinity of the bear market low suggests that the long-term downtrend is still intact, especially given the segment-wide trends.

A test of the lows is still more likely than a bullish break-out, with strong support found near $4.50 and key resistance ahead near $6 and $6.5.

Featured image from Shutterstock

Disclaimer:  The analyst owns cryptocurrencies. He holds investment positions in the coins, but doesn’t engage in short-term or day-trading, nor does he hold short positions on any of the coins.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 380 rated postsTrader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.




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Altcoins

Cardano Price Analysis: ADA/USDT is Eyeing a Big Move Out of Current Technical Setup

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  • Positive update from IOHK audit of Icarus by Kudelski Security.
  • ADA/USDT is moving within a pennant pattern formation, subject to breakout.

Solid Icarus Audit reported by IOHK

IOHK recently announced in their forum that an audit was conducted by Kudelski Security, which is an independent and third-party security audit firm. The audit conducted demonstrated that the Icarus project implementation for Cardano looks all good and set to go, without any major problems. However, a few changes may need to be executed. IOHK developed the Icarus code as a reference implementation, for Cardano light portfolio.

The important of “independent audits, like this one was stressed by IOHK. Stating “they are critical for identifying security issues in the Icarus wallet, that may not have been identified by internal audits”.

Furthermore, IOHK has elucidated Icarus as an open source code base serving as a reference for the creation of safer and easier mobile wallets for Cardano. They said, “this guarantees our customers and clients the safest portfolio we can offer.”  Given the benefit of an external audit, the developers can resolve any problems identified during its product launch audit.

Positive Updates from Cardano Founder

Cardano’s founder, Charles Hoskinson, was recently commenting on Cardano’s future. He said “We have so many amazing things coming out.”

Mr Hoskinson further added that one of their scientists has flown in from Switzerland. They will be doing a video, which will be the first time they have ever talked about their sharding design that we have for Cardano. Further commenting on other updates, including videos about Shelley and the Rust project.

Technical Review – Daily Chart

ADA/USDT daily chart

ADA/USDT is moving within a triangular pattern or a pennant formation, as seen via the daily time frame. It is narrowing, moving closer to a breakout. Ranging ahead of another drop to the deep south. Although, fundamental developments coming out from the Cardano foundation, remain very much upbeat currently.

Over the past 8 days, the price has been grinding higher, after receiving support at the lower trend line of the above-mentioned pattern. In terms of resistance to the upside, this can be seen at 0.08310000. The upper tracking trend line. Further north, a supply zone is running from 0.09000000-0.09500000. ADA/USDT  last traded here on 23rd September. Finally, support is tracking at 0.071800000, lower part of the pennant, also within a demand area. Another strong buying territory is observed from 0.06500000-0.06000000.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.5 stars on average, based on 33 rated postsKen has over 8 years exposure to the financial markets. During a large part of his career, he worked as an analyst, covering a variety of asset classes; forex, fixed income, commodities, equities and cryptocurrencies. Ken has gone on to become a regular contributor across several large news and analysis outlets.




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Analysis

Crypto Update: Top 10 Worst Performers Make Bottom Picking List

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Yesterday, October 18, 2018, Cryptoglobe published, a list of the 10 worst performing cryptocurrency investments of 2018. These altcoins suffered heavy losses of between 97% – 99%. With tremendous devaluation, it may lead you to think that altcoins or cryptos are dead. After all, other assets such as stocks or commodities may likely never come back to life after losing all but one percent of their value.

But this is crypto where coins nosedive one day and skyrocket the next. Cryptoglobe can show you a picture of tragedy, but us; we see opportunity. In this two-part article, we reveal how the top 10 worst performing cryptocurrency investments can make a good bottom picking list.

Zclassic (ZCL/BTC)

% Down from All-time High:

99%

Current Status:

Zclassic/Bitcoin (ZCL/BTC) is currently finding footing at its historic support level of 0.0005. In the last four weeks, the pair has been range trading between 0.0005 and 0.000074.

Bottom Picking Candidate?

An altcoin that’s down 99% is a great bottom picking candidate. Aside from the possibility of a technical bounce, you can expect whales and expert bottom fishers to accumulate positions at this level. So, you can either trade the range or accumulate with the best of them.

Weekly chart of ZCL/BTC

Game Credits (GAME/BTC)

% Down from All-time High:

98%

Current Status:

GAME/BTC is attempting to carve a bottom at the parabolic support of 0.000025. Over the last four weeks, the pair has been trading between 0.000025 and 0.0000346.

Bottom Picking Candidate?

Yes, GAME/BTC has the potential to generate a strong rally in the coming weeks. Volume spikes on September 23 and October 4 hint that someone is accumulating at these levels. More importantly, the market is flashing oversold readings on the weekly RSI. GAME/BTC has the essential ingredients of a powerful bounce.

Weekly chart of GAME/BTC

Bitcoin Diamond (BCD/BTC)

% Down from All-time High:

97%

Current Status:

BCD/BTC is currently trading inside a huge falling wedge on the daily chart. It is still bearish as it continues to generate lower highs and lower lows.

Bottom Picking Candidate?

No, BCD/BTC is not a great bottom picking candidate. However, the pair looks ripe for a breakout. The usual catalysts are present: flashing extreme oversold readings, nearing the apex of the wedge, and trading at all-time lows. Look for volume spikes as a sign of a breakout.

Daily chart of BCD/BTC

Ethos (BQX/BTC)

% Down from All-time High:

97%

Current Status:

BQX/BTC has been carving a bottom at 0.000045 for over a month now. Those who were able to buy at this level are lucky because BQX/BTC is looking ripe for a rally.

Bottom Picking Candidate?

Yes, if you can still manage to get as close to 0.000045 as possible. The volume surges in the last few days suggest that the pair is in the final stages of base building. On October 14, BQX/BTC printed volume that’s over 250% of its daily average.

Daily chart of BQX/BTC

SALT (SALT/BTC)

% Down from All-time High:

97%

Current Status:

SALT/BTC may already be in an uptrend but it seems that only a few people are looking. The 4-hour chart shows that the pair is currently generating a bullish higher low after pulling back from its first higher high in months. SALT/BTC looks bullish in our book.

Bottom Picking Candidate?

Yes, this pullback gives you an opportunity to buy the higher low. We expect SALT/BTC to trade near the support of the ascending channel as it consolidates.

4H chart of SALT/BTC

Bottom Line

In trading and investing, the worst performing cryptocurrency investments and other assets often provide the maximum financial opportunity. We’re seeing that in the first half of the list. We have a feeling that we’ll see more or less the same in the second half of the list. Stay tuned.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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3.7 stars on average, based on 252 rated postsKiril is a financial professional with 4+ years of experience in financial writing, analysis and product ownership. He has passed all three CFA exams on first attempt and has a bachelor's degree with a specialty in finance. Kiril’s current focus is on cryptocurrencies and ETFs, as he does his own crypto research and is the subject matter expert at ETFdb.com. He also has his personal website, InvestorAcademy.org where he teaches people about the basics of investing. His ultimate goal is to help people with limited knowledge of finance and investments to create investment portfolios easily, and in line with their unique circumstances.




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